Voiceover: Running a marathon takes discipline. You need to train regularly, eat correctly and stay mentally strong for the challenge ahead.
The past several decades may have felt like a marathon, as you’ve worked hard and saved to achieve your vision of retirement.
But, reaching retirement isn’t the finish line, it’s actually the beginning. And the road ahead, just like a marathon, is uncertain.
Healthcare spending can rise dramatically during retirement and people are living longer than ever, which means you may need your money to last longer than you anticipated.
There are three ways to help make it last throughout retirement. Protect it. Grow it. Pace it.
Protecting it means, keeping your money safe. The farther along you go in your marathon, the more fatigued you will be, making it challenging to recover from a hard fall. If a severe market event takes you’ll have less time to recoup losses.
Growing it means, at the very least, keeping up with inflation. During your run you should continually refuel but you don’t want to overdo it. Similarly, during retirement, it’s wise to grow your money so it retains its value —you don’t want to overdo it with risky investments and end up losing it.
Pacing it means making your money last – just as you would not exhaust yourself at the start of a marathon – be wise about how you use your retirement investments so they are not exhausted in your life time.
Target date funds simplify the preparation stage of your retirement by automatically reducing portfolio risk as you approach retirement age.
With target date funds, you simply select the funds with your expected, or targeted, year of retirement.
An investment professional called a portfolio manager will then change the investment allocation across a range of asset classes.
If you choose a target date fund when you are younger the fund will likely have more stocks than bonds.
Stocks are considered to be riskier assets, have historically outperformed bonds and are generally regarded as more suited towards growing capital
As you get older, the target date fund’s portfolio manager will slowly shift the balance of investments to less volatile assets such as bonds, which are generally regarded as more suited towards preserving capital.
That way, target-date funds can help you simplify your retirement portfolio management and hopefully, put you in the best position for a successful retirement marathon.
Text on screen: As always, you should talk to your financial advisor who can help select the products and services that are right for you.
Log on to your employer’s plan website to find out if target date funds are available on your plan. You should also consider talking to your advisor if you have investment questions.